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E-Sales Taxes Coming

After months of discussions, a pair of U.S. senators with different approaches to electronic commerce taxation are poised to hammer out a compromise that could ultimately lead to businesses and consumers paying sales taxes for most of their online purchas

After months of discussions, a pair of U.S. senators with different approaches to electronic commerce taxation are poised to hammer out a compromise that could ultimately lead to businesses and consumers paying sales taxes for most of their online purchases.

Sens. Ron Wyden, D-Ore., and Byron Dorgan, D-N.D., have offered conflicting bills addressing the e-commerce taxation issue, with Wydens bill generally favoring online retailers by making it harder for states to collect sales tax from out-of-state merchants, and Dorgans bill making it easier.

But the two are under pressure from Senate Commerce Committee Chairman John McCain, R-Ariz., who has been pushing for the two to codify points of common ground into a single bill. Dorgan and Wyden are "very close," said Sarah Whitaker, director of government affairs at the National Retail Federation, which backs the Dorgan approach. "This whole thing is really starting to come together."

"What I find remarkable is we are now in a position where there is a more than remote chance that we could have a bill that could lead to an expanded duty to collect sales taxes, which a year or two ago seemed very remote," said Jeffrey Friedman, a partner in the tax division at KPMG, an international consulting firm.

Further reading

The bills are tentatively scheduled for a markup this week, meaning the committee could shape and vote upon the final bill, moving it to the Senate floor for a full vote.

Companion pro- and con-Net taxation bills sponsored by Rep. Ernest Istook, R-Okla., and Rep. Chris Cox, R-Calif., respectively are moving in the House and must also be combined.

If Congress fails to act on the issue before October, the current moratorium on new or discriminatory taxes for the Internet will end, and states will be free to devise ways of extracting tax revenue from the Internet. Most lawmakers want to pass the moratorium, but some are making their support contingent upon Congress first dealing with the sales tax issue, which is separate from the moratorium.

Friedman, who has followed the debate closely, said Dorgan has agreed to Wydens demand that before states get authorization to collect taxes during remote sales, Congress must first affirm the authorization with a vote. And Wyden has compromised on Dorgans position that after a certain number of states enter into a compact that simplifies taxing regimes, Congress must quickly vote on whether states can then collect sales taxes.

Both sides in the debate agree that before states are given authority to demand tax collections from out-of-state merchants, they must simplify the chaotic sprawl of an estimated 7,500 sales tax jurisdictions in the U.S.

Currently, states are due sales tax from most online purchases. But because of two U.S. Supreme Court decisions, the states cannot compel out-of-state merchants to collect taxes for them during remote sales. The court ruled that while the states are owed the taxes, the tangle of tax regimes made the task of determining how much tax to charge too burdensome for merchants.

During the past year, states have worked together to simplify and unify their sales tax regimes.

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